Question

Question

Cash Budgeting Retail outlets purchase snowboards from Slopes, Inc., throughout the year. However, in anticipation of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when boards are ordered. Invoices are payable within 60 days. From past experience, Slopes' accountant projects 20% of invoices will be paid in the month invoices, 50% will be paid in the following month, and 30% of the invoices will be paid two months after the month of invoice. The average selling price per snowboard is $450. To meet demand, Slopes increases production from April through July, because the snowboards are produced a month prior to their projected sale. Direct materials are purchased in the month of production and are paid for during the following month (terms are payment in full within 30 days of the invoice date). During this period there is no production for inventory, and no materials are purchased for inventory. Direct manufacturing labor and manufacturing overhead are paid monthly. Variable manufacturing overhead is incurred at the rate of $7 per direct manufacturing labor-hour. Variable marketing costs are driven by the number of sales visits. However, there are no sales visits during the months studied. Slopes Inc., also incurs fixed manufacturing overhead costs of $5500 per month and fixed non manufacturing overhead costs of $2500 per month.

Projected Sales

May 80 units

June 120 units

July 200 units

August 100 units

September 60 units

October 40 units

Direct materials and direct manufacturing labor utilization and cost

Wood = 5 units per board, $30 per unit, unit= board feet

Fiberglass = 6 units per board, $5 per unit, unit = yard

Direct manufacturing labor = 5 units per board, $25 per unit, unit = hour

The beginning cash balance for July 1, 2012 is $10000. On October 1, 2011, Slopes had a cash crunch and borrowed $30000 on a 6% one year note with interest payable monthly. The note is due October 1, 2012. Using the information provided, you will need to determine whether Slopes will be in a position to pay off this short term debt on October 1, 2012.

1. Prepare a cash budget for the months of July through September 2012. Show supporting schedules for the calculation of receivables and payables.

Answer 1

A G D E F July August September $10,000 $57,850 $74,300 $90,000 $45,000 $27,000 $100,000 $102,850 $101,300 $42,150 $28,550 $21,750 $57,850 $74,300 $79,550 1 Cash Budget Schedule: 2 Beginning cash balance 7/1/2012 3 Total collections 4 Cash available 5 Disbursements 6 Ending cash balance 7 Working Notes 8 Cash Collections Schedule: 9 Sales in Units 10 Revenues @ $450 11 Collections 12 20% in month of sale 13 50% in month after sale 14 30% in 2nd month after sale 15 Total collections May 80 $36,000 June 120 $54,000 July 200 $90,000 August September October 100 60 40 $45,000 $27,000 $18,000 $7,200 $10,800 $27,000 $18,000 $45,000 $27,000 $90,000 $9,000 $22,500 $13,500 $45,000 $5.400 $13,500 $8.100 $27,000 $3.600 $9,000 $5,400 $18,000 40 $6,000 $9,000 Disbursement Items: 18 Production-- 1 month before sale 120 200 19 Wood Costs $18,000 $30,000 20 Payments for wood (1 month delay) - $18,000 21 Fiberglass Costs $3,6001 $6,000 22 Payments for fiberglass (1 month delay) $3,600 23 Direct Mfg. Labor costs $15,000 $25,000 24 Payments for DML (paid monthly) $15,000 $25,000 100 $15,000 $30,000 $3,000 $6,000 $12,500 $12,500 60 $9,000 $15,000 $1,800 $3,000 $7,500 $7,500 $1,800 $5,000 $5,000 26 Overhead Costs 27 Payments for VMOH (paid monthly) 28 Payments for FOH (paid monthly) 29 Total Payments for MOH 100 $3.500 $8.000 $11,500 60 $2.1001 $8,000 $10,100 40 $1.4001 $8,000 $9,400 30 31 Cash Disbursements Schedule: 32 Total payments for DMS 33 Payments for DML 34 Payments for MOH 35 Payments for interest 36 Total Disbursements July $18,000 $12.500 $11,500 $150 $42,150 August September $10,800 $7,200 $7,500 $5,000 $10,100 $9,400 $150 $150 $28,550 $21,750 Interest = 30000 6% 1800 150

July 10000 =D15 =SUM(D2:D3) =D36 =D4-D5 August =D6 =E15 =SUM(E2:E3) =E36 =E4-E5 September =E6 =F15 =SUM(F2:F3) =F36 =F4-F5 1 Cash Budget Schedule: 2 Beginning cash balance 7/1/2012 3 Total collections 4 Cash available 5 Disbursements 6 Ending cash balance 7 Working Notes 8 Cash Collections Schedule: 9 Sales in Units 10 Revenues a $450 11 Collections 12 20% in month of sale 13 50% in month after sale 14 30% in 2nd month after sale 15 Total collections May September October 80 June 120 =C9*450 July 200 =D9*450 August 100 =E9*450 =B9*450 =F9*450 =G9*450 =B10*20% =C10*20% =C10*50% =D10*20% =E10*20% =F10*20% =G10*20% =D10*50% =E10*50% =F10*50% =G10*50% =D10*30% =E10*30% =F10*30% =G10*30% =SUM(D12:D14) =SUM(E12:E14) =SUM(F12:F14) =SUM(G12:G14) 18 Production-- 1 month before sale 19 Wood Costs 20 Payments for wood (1 month delay) 21 Fiberglass Costs 22 Payments for fiberglass (1 month delay) 23 Direct Mfg. Labor costs 24 Payments for DML (paid monthly) Disbursement Items: 120 200 100 =5*30*B18 =5*30*C18 =5*30*D18 =B19 =C19 =6*5*B18 =6*5*C18 =6*5*D18 =B21 =C21 =5*25*B18 =5*25*C18 =5*25*D18 =B23 =C23 =D23 60 1=5*30*E18 =D19 =6*5*E18 =D21 =5*25*E18 =E23 40 =5*30*F18 =E19 =6*5*F18 =E21 =5*25*F18 =F23 100 60 40 =5*7*D26 =5*7*E26 =5*7*F26 =5500+2500 =5500+2500 =5500+2500 =SUM(D27:D28) =SUM(E27:E28) 1=SUM(F27:F28) Overhead Costs Payments for VMOH (paid monthly) Payments for FOH (paid monthly) 29 Total Payments for MOH 30 31 Cash Disbursements Schedule: 32 Total payments for DMS 33 Payments for DML 34 Payments for MOH 35 Payments for interest 36 Total Disbursements July | August September =D19+D21 =E19+E21 =F19+F21 =D24 =E24 =F24 =D29 =E29 =F29 =E38 =E38 =E38 =SUM(D32:D35) =SUM(E32:E35) =SUM(F32:F35) | Interest = 30000 0.06 =B38*C38 =D38/12